To calculate overdraft interest, multiply your negative balance by a daily periodic rate, then multiply that by the number of days the account stayed below zero. The daily periodic rate is the overdraft APR divided by 365 (or 360 at some banks). That single formula handles most situations, and the sections below walk through the pieces, the common traps, and how to check the result against what your bank actually posted.
First, Confirm It’s Interest and Not a Flat Fee
There’s nothing to calculate if your bank charged a flat overdraft fee. Most U.S. checking accounts impose a per-item penalty whenever a transaction posts against insufficient funds, and that fee doesn’t scale with the size of the negative balance or how long it lasts. If your statement shows a single charge labeled “Overdraft Fee” or “OD Fee,” it’s a fixed amount set in your account agreement.
Interest-based charges work differently and typically appear when you have an overdraft line of credit linked to your checking account. The bank advances funds to cover the shortfall and charges interest on the outstanding balance, similar to a credit card. On the statement, look for a line reading “Overdraft Interest” or “Debit Interest.” Some accounts assess both a flat fee and interest, so read the fine print before concluding you only owe one.
The Three Numbers You Need
Three inputs drive the calculation: the APR on your overdraft, the negative balance (or balances, if it fluctuated), and the number of days the account was overdrawn.
The APR should be disclosed in your account agreement. When a bank treats overdraft borrowing as open-end credit, the Truth in Lending Act requires it to disclose the APR.1National Credit Union Administration. Truth in Lending Act (Regulation Z) Overdraft line-of-credit APRs at major banks commonly land between 15% and 22%, though the rate you were actually assigned depends on the institution and your credit profile. Don’t assume it matches your credit card or auto loan rate.
The negative balance and the day count come from your statement. What matters is the count of calendar days the balance stayed below zero, not the full length of the billing cycle.
Convert the APR to a Daily Periodic Rate
Banks don’t apply the full annual rate to a single day’s balance. They divide the APR by the number of days in the year to get a daily periodic rate. Most consumer banks use 365 days. Some use a 360-day convention, which produces a slightly higher daily rate. Your account agreement specifies the convention.
Using 18% APR as an example:
- Decimal form: 18% ÷ 100 = 0.18
- Daily periodic rate (365-day): 0.18 ÷ 365 = 0.000493
- Daily periodic rate (360-day): 0.18 ÷ 360 = 0.000500
The gap between 0.000493 and 0.000500 looks trivial, but it compounds across days and dollars. If your calculated interest comes out slightly off from the bank’s figure, the day-count convention is the first thing to check.
Figure Out Which Daily Balance the Bank Uses
The balance subject to interest usually isn’t the lowest point the account hit during the day. Banks typically use the end-of-day ledger balance for each calendar day. If a 2:00 PM deposit brought you positive but a larger debit later that evening pushed you back under, the end-of-day figure is what counts.
Some banks instead calculate interest on the average daily negative balance across the entire cycle. Under that method, every day’s closing negative balance is added up and divided by the number of days in the cycle. The underlying formula is the same; only the balance input changes. Your account agreement will say which method applies.
Run the Math
When the Balance Stays Steady
If the account sits at the same negative amount throughout the overdrawn period, the formula is one multiplication:
Interest = Negative Balance × Daily Periodic Rate × Days Overdrawn
Say your account sat at –$500 for 10 days at an 18% APR on a 365-day basis:
- Daily periodic rate: 0.18 ÷ 365 = 0.000493
- Daily charge: $500 × 0.000493 = $0.247
- Total interest: $0.247 × 10 = $2.47
That’s what should appear on the interest line of your statement for those 10 days. The numbers are small relative to flat overdraft fees, which is why an overdraft line of credit is generally cheaper for short-term shortfalls than an account that charges $25 or $35 per item.
When the Balance Changes
If the negative balance moved during the overdrawn stretch, calculate each segment separately and add the results. Suppose the account went to –$500 on Monday, a second debit pushed it to –$700 on Wednesday, and a deposit on Friday brought it back positive. That’s two days at –$500 and three days at –$700:
- Segment 1: $500 × 0.000493 × 2 = $0.49
- Segment 2: $700 × 0.000493 × 3 = $1.04
- Total interest: $0.49 + $1.04 = $1.53
This mirrors what the bank’s system does internally. For longer periods with lots of activity, pulling the daily balances into a spreadsheet speeds things up. The key is identifying every day the balance changed and treating each stretch as its own mini-calculation.
Simple Interest vs. Daily Compounding
Most overdraft interest is simple interest on the actual daily balance. Interest accrues but doesn’t itself earn additional interest within the same billing cycle. A few banks compound daily, adding each day’s interest to the principal so the next day’s calculation runs against a slightly higher amount. For the short durations typical of overdrafts, daily compounding usually changes the total by pennies. If your agreement says “interest is calculated daily and charged monthly,” that’s typically simple interest posted once per cycle.
Day-Count Traps That Change the Answer
Transaction cutoff times can add a day of interest you didn’t anticipate. Deposits and transfers made after the daily cutoff generally post on the next business day, so the account stays negative for an extra calendar day even though you initiated the deposit the same day you went under. Cutoff times vary by bank and by transaction type, often falling between 5:00 PM and 9:00 PM Eastern.
Weekends and federal holidays matter too. Interest accrues on every calendar day the balance is negative, including days the bank is closed. A Friday-afternoon overdraft you can’t cover until Monday is three days of interest. A holiday weekend can stretch that to four.
Posting order can quietly inflate the daily balance that gets charged. Some banks process withdrawals from largest to smallest rather than chronologically. When the biggest debit clears first, the running balance drops faster, which can push the account negative sooner and leave a larger negative balance in place for the interest calculation. Other banks post in chronological order, which tends to produce smaller negative balances. You usually can’t control the posting method, but when your own timeline doesn’t match the daily balances on the statement, pull the actual posted transaction order from online banking rather than trusting memory.
Some banks offer a grace period, often around 24 hours after a transaction triggers the negative balance, during which a deposit will eliminate any fee or interest. The practice has become more common at large banks, but it’s not universal. If your account offers one, a same-day transfer can wipe out the charge entirely.
Check It Against the Statement, and Dispute Anything Off
Banks must disclose the total dollar amount of overdraft-related fees on your periodic statement, labeled “Total Overdraft Fees,” with both current-period and year-to-date totals.2Consumer Financial Protection Bureau. 12 CFR 1030.11 Additional Disclosure Requirements for Overdraft Services Interest on an overdraft line of credit, when treated as open-end credit, appears under separate Regulation Z disclosures that include the periodic rate and finance charge.1National Credit Union Administration. Truth in Lending Act (Regulation Z)
Compare your calculated figure to the posted charge. A penny or two of rounding difference is normal, because banks carry more decimal places in the daily rate than you likely used. Anything larger is worth investigating. The usual suspects are the wrong day-count convention (365 vs. 360), a miscounted day because of cutoff-time posting delays, and daily compounding you didn’t account for.
If you find a real error, Regulation E gives you a formal path to challenge it. Notify the bank in writing within 60 days of the statement date. The bank then has 10 business days to investigate and either correct the error or explain why the charge stands. If an error is confirmed, the bank must credit the overcharge back, including any interest that accrued as a result.3Consumer Financial Protection Bureau. 12 CFR 1005.11 Procedures for Resolving Errors If the bank doesn’t resolve the issue, you can file a complaint with the Consumer Financial Protection Bureau.4Consumer Financial Protection Bureau. What Can I Do if My Bank Charged Me a Fee for Overdrawing My Account